As buy now, pay later services become more widely used, Democratic officials at both the federal and state levels are pushing for stronger oversight—filling the gap once covered by the Consumer Financial Protection Bureau.
Seven Democratic senators have sent letters to major BNPL providers, seeking detailed information on their lending practices and urging them to report relevant data to credit agencies. Similarly, seven Democratic state attorneys general have requested explanations of how BNPL companies evaluate a consumer’s ability to repay, along with details on billing practices, late fees, and dispute procedures.
Their concern is that BNPL users may already be financially overextended when they on additional loans. One letter to Klarna, for example, cites data showing that consumers with a BNPL loan carried, on average, $871 more in credit card debt during the month of origination than comparable consumers who did not use BNPL.
Seeking More Disclosure
Under the Biden administration, the CFPB proposed applying the Truth in Lending Act to BNPL companies, which would make them subject to the same disclosure requirements as credit card issuers. The Trump administration rescinded that rule earlier this year.
Some BNPL providers are already doing at least part of what lawmakers are requesting. Affirm took the lead in providing data to credit bureaus earlier this year. A joint study between Affirm and Experian found that the effects of BNPL on credit scores were negligible overall—and when there were impacts, they were often positive.
“Providing the necessary data and demonstrating that their practices are just another credit option that isn’t causing significant financial harm to consumers could garner favor from regulators,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. “But it’s a gamble of how one will interpret the data. If one goes into the analysis with an expectation that BNPL is already causing significant harm, I’d expect them to leave with that conclusion.”
Growing in Popularity
The investigation comes as BNPL continues to grow in popularity. As noted by the lawmakers, half of all U.S. consumers have used BNPL plans, and about a quarter of BNPL users have had three or more such loans at the same time.
According to the consumer analytics firm CivicScience, 38% of shoppers used BNPL services over the recent Black Friday weekend, with most of those users being younger and lower-income consumers.
